While sovereign fund assets recorded their first drop in value in 2022, investment activity kept growing and increased by 38% vs. 2021 figures.
Major trends in 2022 expected to continue this year include the re-emergence of Gulf nation sovereign wealth funds, a balance between domestic and international investment, and more money going into renewable energy, according to Global SWF's 2023 annual report issued Jan. 1.
Overall, sovereign funds invested 38% more than they did in 2021, with $152.5 billion across 427 transactions, while public pension funds invested 9% less, with $108.6 billion across 320 deals.
Sovereign fund assets fell to $10.6 trillion and public pension fund assets fell to $20.8 trillion in 2022. With the caveat that they are "paper losses" since most sovereign wealth funds have delayed reporting, Global SWF estimated that asset values dipped by $1 trillion for sovereign wealth funds and by $1.3 trillion for public pension funds.
Total state-owned fund investments in 2022 reached $261.1 billion in 747 deals, a 14% increase from 2021 in terms of dollars but 16% less in terms of the number of deals, which Global SWF attributed to the return of mega-deals and less venture capital activity. There were 60 mega-deals of $1 billion or more in 2022, with average ticket sizes not seen since 2016, the report said.
GIC, Singapore, was the most active sovereign investor last year, investing $40.3 billion in 73 deals, followed by major Gulf investors that "are poised to become crucial players in Western markets," the report said.
GIC does not disclose the size of its investment portfolio, but analysts estimate its value at more than $400 billion.
Last year saw more investments in transportation and other infrastructure projects, energy, industrials, and financials, and fewer in consumer, tech, and health care. Green investing "stayed strong," overshadowing fossil fuel investments, according to the Global SWF report that also found most sovereign investors reducing activity in U.S. equity markets.
Between the Russian invasion of Ukraine, interest rate hikes and market corrections, 2022 "was one of the most difficult years" for state-owned investors, the report said, noting the major challenge of a simultaneous and significant correction of bonds and stocks that had not happened in 50 years.
Last year saw a move into infrastructure and private credit, while hedge funds gained some momentum as an asset class among sovereign investors. "In a year when all major asset classes performed poorly, it is difficult to pick up the leading asset class in 2022," the report said, but there was an uptick in allocations to hedge funds as asset owners sought diversification and uncorrelated strategies.
In 2022, the average allocation of sovereign investors to hedge funds reached an all-time high of 2%, with an estimated $500 billion held by sovereign wealth fund and pension funds now accounting for 25% of the total industry size, and the $829 billion Abu Dhabi Investment Authority the largest allocator, the report said.
Looking ahead to 2023, one major trend expected to continue is the re-emergence of Gulf state sovereign wealth funds fueled by oil revenues. The Gulf's 18 funds now managing $3.7 trillion doubled their investments in Western economies last year, at $51.2 billion compared to $21.8 billion in 2021.
The new year is also expected to see a continued balance between domestic and international investments and increasing investment in renewable energy, the report said.
